Business Context and Reporting Period
This Form 6-K/A filing by Ambev S.A. serves as a Management Proposal for the Annual and Extraordinary Shareholders' Meetings held on April 29, 2016. The filing details the financial results for the fiscal year ended December 31, 2015, proposes the allocation of net profits, ratifies management compensation, and seeks approval for the merger of two wholly-owned subsidiaries, Cervejarias Reunidas Skol Caracu S.A. ("Skol") and Eagle Distribuidora de Bebidas S.A. ("Eagle"), into Ambev S.A. to simplify the corporate structure.
Key Financial Metrics (Fiscal Year 2015)
| Metric | 2015 Value (R$) | 2014 Value (R$) | Change |
|---|---|---|---|
| Net Revenues | 46,720.2 million | 38,079.8 million | +22.7% |
| Gross Profit | 30,658.8 million | 25,265.2 million | +21.3% |
| Operating Profit | 18,778.5 million | 15,826.6 million | +18.7% |
| Net Profit (Consolidated) | 12,879.2 million | 12,362.0 million | +4.2% |
| Net Profit (Controlling Shareholders) | 12,423.8 million | 12,065.5 million | +3.0% |
| Operating Cash Flow | 23,580.9 million | 15,895.7 million | +48.3% |
| Total Debt | 3,599.5 million | 2,622.7 million | +37.2% |
| Cash & Equivalents | 13,620.2 million | 9,722.1 million | +40.1% |
| Current Liquidity Ratio | 0.9x | 0.9x | Stable |
Profit Margins: Gross margin decreased slightly to 65.6% (from 66.3% in 2014). Operating margin was 40.2% (down from 41.6%). Net profit margin for the year was 27.6% (down from 32.5%).
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 22.7% primarily due to currency translation effects (appreciation of foreign currencies against the Brazilian Real) and price increases, despite a 1.6% decline in sales volume (169.1 million hectoliters vs. 171.8 million in 2014).
- Cost Pressures: Cost of sales rose 25.3% to R$16.1 billion. Increases were driven by foreign currency impacts, inflation in Brazil and Argentina, and higher depreciation, partially offset by commodity hedging benefits.
- Financial Expenses: Net financial expenses increased 53.7% to R$2.3 billion, largely due to higher interest costs and losses on derivative instruments related to currency hedging.
- Taxation: Income tax expense surged 81.1% to R$3.6 billion, with the effective tax rate rising from 14.0% in 2014 to 22.0% in 2015 due to new Brazilian legislation on taxing foreign profits and non-deductible expenses related to a CADE settlement.
- Balance Sheet: Total assets grew 25.0% to R$90.2 billion. Goodwill increased 12.5% to R$30.9 billion, and Property, Plant, and Equipment rose 21.6% to R$19.1 billion.
Guidance, Outlook, and Corporate Actions
- Profit Allocation: Management proposes allocating R$9.26 billion (74.52% of net profit) to dividends and Interest on Own Capital (IOC). The remaining profit is allocated to the Investments Reserve (R$2.11 billion) and Tax Incentives Reserve (R$1.14 billion).
- Management Compensation: Ratification of 2015 compensation totaling R$71.1 million for Management and R$1.7 million for the Fiscal Council. A cap of R$89.4 million is proposed for 2016 Management compensation, now including fair value expenses for stock options and share-based plans.
- Mergers: Approval sought for the merger of Skol and Eagle into Ambev. This is a restructuring of wholly-owned subsidiaries intended to reduce administrative costs and simplify the equity structure. No dilution to shareholders is expected.
- Share-Based Plan: Proposal to approve a new Share-Based Compensation Plan (Stock Plan) allowing the award of up to 0.3% of share capital (approx. 47.2 million shares) to managers and employees.
- Outlook: Management expects 2016 CAPEX in Brazil to be lower than 2015 levels. The company maintains sufficient liquidity to cover obligations for the next 12 months.
Investor Verification Checklist
- Currency Impact: Verify the extent to which reported revenue and cost growth is driven by the devaluation of the Brazilian Real versus organic volume growth, as volume actually declined.
- Tax Rate Volatility: Confirm the sustainability of the 22% effective tax rate given the specific one-time impacts of new foreign profit taxation laws and the CADE settlement.
- Debt Profile: Review the maturity schedule of the R$3.6 billion debt, noting the mix of fixed and floating rates and the exposure to foreign currencies.
- Mergers Completion: Monitor the regulatory approval status of the Skol and Eagle mergers to ensure the anticipated cost synergies are realized.
- Dividend Payout: Confirm the final payout ratio and timing of the proposed R$9.26 billion distribution to shareholders.